Why ‘No Late Fees’ Isn’t an Excuse to Pay Late

When Discover introduced their latest product, the Discover it card, the company highlighted the fact that there was no late fee for cardholders’ first late payment. But savvy cardholders were already aware that most banks will waive an occasional late fee when asked. Nevertheless, other cards such as the Citi Simplicity, American Express Clear, and the PenFed Promise all claim to impose no late fees at any time.

So with all of these fee-free cards, why should you bother paying on time? Actually, there are several good reasons why you should always pay your credit card bills on time, even if you hold one of these cards.

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You can lose your grace period. Ideally credit card users will pay their credit card statement’s balance in full and on time each month to avoid paying any interest. And while some cards may have no fees if your payment arrives late, you will still forfeit your grace period and will owe interest on all of your purchases.

Interest is still accumulating on existing debt. Credit card users who are carrying a balance have already lost their interest-free grace period, but they still have plenty to lose by making a late payment. Even in the absence of late fees, interest continues to accumulate on their debt. In fact, cardholders who are carrying a balance would be best served by making their payments early each month, as credit card interest is calculated based on their average daily balance.

Penalty interest rates may apply. While a late fee as high as $35 can make you cringe, there are far worse punishments possible — such as the penalty interest rate. For example, with the Clear Card from American Express, the penalty interest rate is currently a stunning 27.24%. Thankfully, the Citi Simplicity and Discover it cards do not have a penalty interest rate.

Late payments are reported to credit agencies. Even after you have paid your balance, interest, and penalties, a late payment can continue to cost you. Late payments are still reported to credit agencies and will have a negative affect on your credit score. And with a lower score, you can expect higher interest rates on your credit card, your mortgage, and any other loans that you apply for.

Your credit card can be canceled. Even with a card like the PenFed Promise that has no late fees or penalty interest rates, you can’t just stop making payments. At some point, the card issuer will have had enough of your delinquency and your account will be suspended or even canceled. And once again, these actions will hurt your credit.

It is always a good thing when a credit card issuer decides to forgo imposing a fee. Although one fee may be absent, there can still be serious consequence for late payments. By making your credit card payments on time, or even early, you can always minimize the interest and penalties you will have to pay.

Image: iStockphoto

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Note: It's important to remember that interest rates, fees and terms for credit cards, loans and other financial products frequently change. As a result, rates, fees and terms for credit cards, loans and other financial products cited in these articles may have changed since the date of publication. Please be sure to verify current rates, fees and terms with credit card issuers, banks or other financial institutions directly.

Jason Steele has been writing about credit cards and personal finance since 2008, poring through the terms and conditions of credit card agreements to understand the minutiae of how these products work. His work has appeared on Yahoo, MSN, HuffingtonPost and other major news outlets. In his free time, Jason's a commercial pilot. He graduated from the University of Delaware with a degree in History. More by Jason Steele

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